India’s proposed gold deposit scheme could spark a sell-off in the Rupee

The latest research report published by Societe Generale warns that the gold deposit proposals by the Reserve Bank of India could have opposite effect to what the government intends. The special report titled ‘India in Focus’ cautions that if not handled carefully, the gold deposit scheme may spark a sell-off in the Rupee.
According to reports, Bank of Nova Scotia is currently in talks with trade group the Gems and Jewellery Trade Federation (GJF) and the Reserve Bank of India (RBI) to finalize details of the scheme. Haresh Soni, Chairman,GJF expressed hope that all issues would be sorted out and the scheme would receive RBI’s nod within four to five weeks.
As per the scheme, gold owners can deposit their holdings with bank and earn interest in return. The owners would also enjoy a ‘central bank guarantee’ that the gold thus deposited will be returned in full at the end of the deposit period. A key target of the scheme is the gold hoards held by temples in the country, though the very idea of divulging gold holdings attracted fierce protests from temple authorities.
The gold deposit scheme primarily aims to reduce the gold bullion imports to the country, thereby easing pressure on Rupee. Societe Generale states that ‘communication’ is the key. If not handled well, it could send a distress signal, which could lead to a heavy sell-off in Rupee.
Source:Bullion Bulletin

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